While e-commerce represents, at best, roughly one-tenth of the total $28 trillion global retail market, it’s growing so rapidly that it’s driving most of the growth. Global fast-moving consumer goods (FMCG) retail—both online and offline—is a $4 trillion sector, growing at a rate of just 4%, with signs of continuing sluggish performance in developed markets. On the other hand, total retail e-commerce is predicted to grow by 20% (combined annual growth rate) to become a $4 trillion market by 2020. In dollar terms, this is an additional $2.1 trillion over the next four years, compared with $0.7 trillion across the FMCG segment.

This growth outlook begs the question, are brands and retailers treating e-commerce as a bigger growth opportunity than the whole FMCG industry itself?

Relative to sectors like apparel and electronics, it’s still early in the evolution of e-commerce for most FMCG categories. The grocery category is even earlier along the chain of evolution. As a result, even in some of the most developed markets, like the U.S., we will see significant growth of online channels. While 23% of Americans are buying groceries online today, that’s expected to more than triple in less than 10 years.

The prospect of the online retail industry equaling the FMCG industry in size globally represents a massive shift in consumer habits from the perspective of manufacturers and retailers. It’s the biggest change we will see in our lifetime.

Any FMCG strategy that’s not already factoring in e-commerce is missing a big part of the growth story.

RETAIL RIDES ON THE BACK OF SMARTPHONES … MOSTLY

The relationship between smartphone ownership and retail e-commerce is complicated. Retail e-commerce appears to walk hand-in-hand with a market’s smartphone penetration, but there are outliers, and they can’t be easily explained.

While it’s a strong relationship, the reach of smartphones alone isn’t sufficient for strong e-commerce development.

A closer look at the relationship between FMCG and e-commerce reveals a more tenuous one-to-one connection. When it comes to the grocery category, the outliers become even more apparent. We see the strongest outliers happening in South Korea, China, Singapore, the U.K. and France.

This can only mean one thing: Consumers’ online and mobile behaviors alone are not the only set of factors changing offline versus online shopping trends.

Looking at the total e-commerce market and how much this variation is explained by connectivity and mobile penetration, 70% of variation in total e-commerce sales can be accounted for by these two factors. On the other hand, connectivity and mobile only account for 40% of variation in grocery e-commerce, which means 60% is explained by other factors.

When it comes to the grocery category, supply is more important than demand on the e-commerce front. Compared with total e-commerce, grocery e-commerce is less affected by connectivity and mobile. An array of other factors come in to play when it comes to grocery e-commerce, and those factors vary from region to region

For example, consumers in the U.K. are accustomed to buying groceries online because of two very early entrants (Tesco and Ocado) to the space. Comparatively, India is at the opposite end of the spectrum despite the country’s very high smartphone penetration rate. In fact, retail e-commerce providers currently deliver to just 200 cities, in India, with grocery e-commerce available in just 30 cities.